Article Review

on
Effect of Credit Risk on the Performance of Nepalese
Commercial Banks
Author Name:
Yuga Raj Bhattarai

PRESENTED BY GROUP B

R A J AT S H R E S T H A
Background of the study
 The background of the article may contain information about Nepal's banking sector, including
its size, structure and importance to the country's economy.
It may provide an overview of the current state of credit risk management practices in
Nepalese banks, and analyze how credit risk affects various financial performance indicators
such as profitability, liquidity, and solvency.
The author may also provide a rationale for conducting the study, which could include the
importance of understanding the relationship between credit risk and bank performance for
policymakers, regulators, investors, and other stakeholders.
Objective of the study
The main objective the study is to investigate and analyze the relationship between credit risk
and the financial performance of commercial banks in Nepal
Hypothesis
H1: Capital adequacy ratio has a significant and positive effect on ROA
H2: Non-performing loan ratio has a significant and negative effect on ROA
H3: Cost per loan assets has a significant and negative effect on ROA.
H4: Cash reserve ratio has a significant and negative effect on R0A
H5: Bank size has a significant and positive effect on ROA
Conceptual Framework
Research Gap
The research gap of the article is by examining the determinants of credit risk and management
and their relationship with the financial performance of commercial banks in Nepal using a
comprehensive and holistic approach. The article uses multiple indicator of credit risk
management such portfolio diversification, capital adequacy ratio, non-performing loan ratio, loan
loss provision ratio and liquidity ratio to measure the credit risk management practices and
policies of the banks.
 Methodology
Research design Descriptive and comparative

Population and Sample 77 observations

Time Spinning 6 year period ( 2010-2015)

Source of data NRB

Analysis tool: time series and cross-sectional data, Pooled data

regression model

Sampling Adequacy : Correlation analysis, VIF, regression model

RESULT AND DISCUSSION
 Conclusion
According to the regression model, NPLs have a negative and statistically significant influence on bank
performance. Bank performance is positively and statistically significant influenced by cost per loan asset
and bank size.
According to the conclusions of this study, the sampled businesses had weak credit risk management
strategies. This is demonstrated by the tiny 'capital adequacy ratio' result and the negative 'non-performing
loan ratio' coefficient.
The negligible result of 'capital adequacy ratio' implies that capital adequacy ratio cannot be considered an
influential indicator for bank performance.
Because the coefficient is negative and negligible, the study rejects the theory that Nepalese commercial
banks with greater capital adequacy ratios may extend more loans and absorb credit losses whenever they
arise, resulting in improved performance
Overall Observation
Strength: When we went through the paper, we found that the introduction chapter is nicely
organized. The variable are clearly explained and they are also linked with past research. The
finding are well discussed and interpreted.
SIMILAR RESEARCH
Topic: The impact of Credit risk management of financial performance of commercial banks in
Nepal
Author: Ravi Prakash Sharma Poudel
Journal: International Journal of Arts and Commerce
Objective: The main purpose of the study was to establish the impact of credit risk management
on financial performance of banks and specific objectives were to establish impact of default
rate, cost per loan assets on bank financial performance.
Findings: The study revealed that all the parameters have an inverse impact on banks’ financial
performance, however, the default rate is the single most important predictor of bank financial
performance
Further Research Agenda
As the article is to be useful to academicians as a source of knowledge for further research. The
study is concentrated on only three factors and thus, further study should be carried out on the
topic to point out the other factors that enhance “Mitigation of credit risk to improve
performance of Nepalese commercial banks
REFERENCE
Bhattarai, Y. R. (2015). Effect of Credit Risk on the Performance of. NRB Economic Review, n.a.
Coyle, B. (2000). Framework for Credit Risk Management,. United Kingdom: Chartered Institute of, n.a.
Poudel, R. P. (2012). The impact of credit risk management on financial performance of commercial banks.
International Journal of Arts and Commerce, 1.